Online Gambling: How To Execute Market Creating Strategies

Posted by Otto on October 28, 2015

In America, corporate performance has been deteriorating for decades. According to Deloitte’s landmark study The Shift Index, the aggregate return on assets of U.S public companies has fallen below 1%, to about a quarter of its 1965 level.

Market power has moved from companies to consumers, global competition has intensified, managers in almost every industry must now face these steep performance challenges. To turn things around, they need to be more creative in developing and executing their competitive strategies. Despite the global recession, online gambling has grown from strength to strength year in and year out.

”German research group Statista predicts that by the end of 2015 the global online gaming market will have grown to $41.4 billion, according to a report late last month from TechFruit.”

Long-term success will not be achieved through competitiveness alone. This depends on the ability to generate new demand, to create and capture new markets. As more and more countries begin to grapple with cyber gaming regulation, not only does it open up potential new markets but new revenue streams as well.

But, despite this, few operators and casino affiliates seem to crack the code. What exactly is getting in their way? It stands to reason that many managers involved in market-creating strategies are still hampered by mental models-ingrained assumptions and theories about the way the world works. Though mental models lie below people’s cognitive awareness, they’re such a powerful determinant of choices and behaviours. This is why neuroscientists regard them as automated algorithms that dictate how we as human beings respond to changes and events.

Does Market Creation Involve Creative Destruction?

No, it does not. Mental models have their merits. In a challenging economic environment, a robust mental model can help a business make decisions that are critical to its survival. They help managers and owners respond better to competitive challenges. One thing that comes to mind is the way in which Joshua Chan, owner of Latestcasinobonuses.com rose to the challenge when his site incurred a hefty penalty from Google.

”Josh is a real inspiration, when you hear his story and background it gets you passionate and excited to start your own venture and create an empire of your own. He makes it look easy, but you find out when you try on your own that it’s not an easy road being an entrepreneur and growing your own business.” Melanie Attwell, marketing manager LCB

What are the traps built into managers’ mental models? Think of them as red ocean traps, because they anchor managers in red oceans-crowded market spaces where cyber casinos engage in bloody competition for market share. A lack of creativity prevents managers from entering blue oceans, also known as uncontested markets with ample potential.

The first trap stems from assumptions about marketing, in particular an emphasis on customer orientation and niches. The next two from economic lessons on technology and creative destruction. In the following section I’m going to explore each trap in detail and how it thwarts online casinos’ attempts to create new markets.

Generating new demand is at the heart of market-creating strategies. It hinges on converting non-players into players. The trouble is that most casino managers still believe that the customer is king-to a certain extent this is true. However, this market-creating strategy is customer led, it happens that managers only focus on their existing customers and how to make them happier. This approach, as mundane as it may sound won’t create new markets. This is why an operator must turn its focus to non-players and must refuse to patronize an industry’s offering.

A focus on existing players, tend to drive operators to come up with better solutions in terms of what they currently offer-but still keeps them moored in red oceans. Consider Sony’s launch of the Portable Reader System (PRS) in 2006. The company’s aim was to unlock a new market space in books by opening the e-reader market to a wide customer base. To figure out how to realise that goal, it looked to the experience of existing e-reader customers who were not happy with the size and poor quality of the current products. Sony’s response was a thin, lightweight device with an easy-to-read screen.

Trap Two: Treating Market-Creating Strategies As Niche Strategies

The field of marketing has placed great emphasis to identify and capture niche markets. Though niche markets can be very lucrative, uncovering a niche in an existing space is not the same thing as identifying a new market space. Successful market-creating strategies don’t focus on finer segmentation. More often than not, they ‘desegment’ markets by identifying key commonalities across buyer groups that could help generate broader demand. A very good example is Denise Coates, co-CEO of Bet365.

”Noting the success of online gambling businesses, Coates bought the domain Bet365.com in 2000 and launched the website in March 2001 after being shunned by traditional venture capitalists. Bet365 is now one of the world’s largest online gambling companies. Its stake in the local Stoke City Football Club, which Coates’ father chairs, is the only loss-making part of the business.”

After many focus group discussions and armed with an unshakable dream, today Bet365 enjoys a robust profitable growth in the new market space it established.

The reality is that market creation is not inevitably about technological innovation. When Androids and Tablet mobile devices first burst onto the scene in the late 2000’s. Value innovation, not technology innovation is what launches commercially compelling new markets. Successful new products or services open up market spaces by offering a leap in productivity, simplicity, ease of use, convenience and fun.

”Financial services firm Morgan Stanley believes the U.S. online gaming market could reach $2.7 billion by 2020, assuming more states legalize and regulate the industry.”

One of the hardest truths for any technologist is to hear that success or failure is determined by the quality of the technology. When operators mistakenly assume that market creation hinges on breakthrough technologies, they tend to push for products or services that can be ‘too complicated’ or too ‘out there’. Without a doubt the advent of mobile devices revolutionized online gambling and could be seen as the greatest technological invention the industry has ever experienced.

Trap Four: Equating Creative Destruction With Market Creation

Joseph’s Schumpeter’s theory of creative destruction lies at the heart of innovation economics. When does creative destruction occur? It occurs when an invention disrupts a market by displacing an earlier technology or existing product. When internet gambling made its appearance in 1994, gamblers used computer desktops to place a bet. Since the mobile revolution, mobile devices account for more than 50% of the searches in Google.

But, does market creation always involve destruction? The answer is no. Many market-creating initiatives are non-destructive because they offer solutions that did not exist previously. We’ve seen this happen with social media and crowdfunding industries. Conflating market creation with creative destruction not only limits an operator’s set of opportunities but also sets off resistance to market-creating strategies.

In established internet casinos, people don’t like the notion of creative destruction or disruption because it may threaten their current status or jobs. As a result, managers often undermine their company’s market-creating efforts by starving them of resources, allocating undue overhead costs, or not co-operating with their employees.

Trap Five: Equating Market-Creating Strategies With Differentiation

In a competitive industry, companies tend to choose their position on what economists call the ‘productivity frontier’. Differentiation is the strategic position on this frontier in terms of the following:

Which online casino stands out from its competitors by providing premium value to its customers. This could be accomplished by offering players a casino that’s visually appealing, extensive game variety by premium software vendors and exemplary customer service.

In reality, a market-creating move breaks the value-cost trade-off. It is about pursuing differentiation and low cost simultaneously.

Trap Six: Equating Market-Creating Strategies With Low-Cost Ones

This trap, where managers assume that they can create a new market solely by driving down costs, is the obvious flip side of trap five. When an online casino sees market-creating strategies as synonymous with low-cost strategies alone; it tends to focus on reducing its current offerings and largely ignores what it should improve or create to increase player value. This happens when operators don’t offer exclusive deals such as VIP programs to loyal depositors and high rollers, cash back on losses, reload bonuses or sites that have that thrown-together look.

Conclusion

The approaches or strategies presented as ‘red ocean traps’ are not wrong or bad. They all serve important purposes. A player-centric focus, for example, can improve products or services. A technology innovation is a key input for market development and economic growth. Likewise, differentiation or low cost is an effective competitive strategy. Keep in mind that these approaches are not the path to successful market-creating strategies.

This is why it’s key to check the mental models managers use to execute market-creating strategies. If those models and assumptions are misaligned with the intended strategic purpose, you need to challenge, question and reframe them. Otherwise, you may fall into the red ocean traps.